[Federal Register Volume 59, Number 162 (Tuesday, August 23, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-20629]
[[Page Unknown]]
[Federal Register: August 23, 1994]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF HEALTH AND HUMAN SERVICES
Social Security Administration
20 CFR Part 416
[Regulations No. 16]
RIN 0960-AD61
Supplemental Security Income for the Aged, Blind, and Disabled;
Treatment of Promissory Notes in Home Replacement Situations
AGENCY: Social Security Administration, HHS.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: This regulation explains how the Social Security
Administration treats promissory notes and similar installment sales
contracts and the proceeds generated therefrom when received as a
result of the sale of a home which is excluded from resources under the
supplemental security income (SSI) program. This regulation provides
for application of the ``home replacement exclusion'' in situations
where timely reinvestment of the installments into another home, which
is similarly excludable as the principal place of residence, is made.
EFFECTIVE DATE: This final regulation is effective August 23, 1994.
FOR FURTHER INFORMATION CONTACT: Regarding this Federal Register
document--Henry D. Lerner, Legal Assistant, Office of Regulations,
Social Security Administration, 6401 Security Boulevard, Baltimore, MD
21235, (410) 965-1762; regarding eligibility or filing for benefits--
our national toll-free number, 1-800-772-1213.
SUPPLEMENTARY INFORMATION:
Section 1613(a)(1) of the Social Security Act (the Act) excludes an
individual's home from resources for purposes of determining
eligibility for SSI payments. Further, Sec. 416.1212(d) of our
regulations allows the proceeds from the sale of an excluded home to be
excluded from resources to the extent the proceeds are intended to be
used and are, in fact, used within 3 months of the date of their
receipt to purchase a replacement home which is similarly excluded.
When that regulation was published in 1975, conventional financial
arrangements were the norm. It was reasonable to expect an individual
to receive the full purchase price of the former home in cash and to
reinvest fully and immediately all cash proceeds from the sale.
Therefore, no provision was included in the regulations for the
treatment of home purchase financing other than full cash payment at or
near the time of sale. Over the years, however, less conventional
arrangements involving proceeds other than cash (such as promissory
notes or installment sales contracts) have become more common.
Under our regulations defining resources in the SSI program at
Sec. 416.1201, promissory notes or installment sales contracts received
as proceeds from the sale of a home are considered resources as long as
the SSI claimant owns them and has the legal right to convert them to
cash to be used for his or her support and maintenance. Such
instruments can be excluded, however, under Sec. 416.1212(d) if they
are converted to cash and used for the purchase of a replacement home
within 3 months of receipt of the note or contract. In fact, prior to
September 1989, we required that they be so converted in order to be
considered an excluded resource. Accordingly, under this
interpretation, the claimant's options were limited to selling the
house for cash (possibly below market value) or liquidating the
promissory note or installment sales contract likely at a substantial
loss. Either of these options could have jeopardized the opportunity to
acquire or maintain a replacement home without losing SSI eligibility.
On September 11, 1986, the United States Court of Appeals for the
Ninth Circuit rejected this interpretation of Sec. 416.1212(d) in the
case of Hart v. Bowen, 799 F.2d 567. The Hart case involved an
individual who sold her home under an installment sales contract. She
applied the downpayment she received toward the downpayment on a new
home. She also applied each of the monthly installment payments she
received toward the mortgage on the new home. Her SSI benefits were
terminated because the installment contract from the sale of her former
home constituted an excess resource. The Ninth Circuit Court of Appeals
found that the current market value of an installment sales contract
resulting from the sale of an individual's excluded home is part of the
value of the replacement home and thus excluded from countable
resources, provided the payments generated by the contract were
reinvested timely in the excluded replacement home. In May 1987, as a
result of the decision rendered by the Ninth Circuit in Hart v. Bowen,
we issued Acquiescence Ruling AR 87-3(9) to comply with the decision in
the Ninth Circuit States.
In September 1989, we changed our national practice and published
Social Security Ruling SSR 89-5p, effective September 6, 1989. The
ruling explained that the value of an installment sales contract
constitutes a ``proceed'' from the sale of an excluded home which can
be excluded from resources under Sec. 416.1212(d) if: (a) the contract
results from the sale of an individual's home as described in
Sec. 416.1212(a); (b) within 3 months of receipt (execution) of the
contract, the individual purchases a replacement home which also fits
the description in Sec. 416.1212(a); and (c) all contract generated
sale proceeds are reinvested in the replacement home within 3 months of
receipt of such proceeds. In addition, the ruling provided that when
payments against the principal that result from the installment sales
contract are being reinvested timely (i.e., within 3 months of receipt)
in a new home, such payments are also excluded from resources. The
ruling further provided that if the home replacement exclusion is not
applicable because one or more installment payments have not been
timely reinvested, the exclusion may be applied effective with the
month following the month of receipt of a timely reinvested payment.
This regulation codifies SSR 89-5p and reflects more completely our
policy on the treatment of proceeds from the sale of an excluded home
by designating the existing text in Sec. 416.1212 paragraph (d) as
paragraph (d)(1), and adding two new paragraphs (d)(2) and (d)(3), to
explain the conditions under which the value of a promissory note or
similar installment sales contract, and other proceeds from the sale,
consisting of the downpayment and monthly installment payments towards
the principal, will be excluded from being considered SSI resources. In
addition, we are adding new paragraphs (e), (f), and (g) to
Sec. 416.1212 to explain the effects on SSI eligibility of failure to
reinvest installment payments timely and the receipt of interest
payments. When this final rule is published both SSR 89-5p and AR 87-
3(9) will be rescinded.
Public Comments
We published the proposed rule with a Notice of Proposed Rulemaking
(NPRM) in the Federal Register on October 13, 1993 (58 FR 52943).
Interested persons and organizations were given 60 days to comment. The
comment period closed on December 13, 1993. We received comments from
only one commenter.
We considered carefully all of the comments which this individual
made on the proposed rule. However, for the reasons stated below, we
did not adopt any of them. Accordingly, the final rule is the same as
the proposed rule. A summary of the comments and our responses are
provided below.
Comment: The commenter disagreed with the policy to allow a person
only 3 months to reinvest the proceeds from the sale of an excluded
home into another home since the purchase of a home generally
represents one of the largest transactions a person may make, one which
would require time to make a wise decision. Thus, the commenter
believes that it makes sense to give a person more time. The period
should be increased from 3 months to 6 months similar to the time
allowed for the disposal of other resources, such as retroactive title
II or title XVI payments.
Response: We do not plan to change the 3-month time period for
reinvestment. The substance of our regulatory revision focuses on how
to evaluate as resources certain noncash proceeds from the sale of an
excluded home and not on the time period of reinvestment. The time
period has been longstanding program policy which was not questioned in
the Hart decision. We would expect that individuals selling their homes
would arrange for the purchase of a new home before the former home is
sold. In addition, we have no evidence to support the commenter's
contention that the current time period for reinvestment is too short.
Comment: The commenter criticized the proposed policy to count as a
resource the value of the note as well as any proceeds not timely
invested as being an ``overly harsh penalty.'' Because the individual
has immediate access only to the proceeds of the note that are ``on
hand'' to meet his or her basic needs and not the value of the note
itself, the commenter believed that only the proceeds should be
considered a resource.
Response: This policy is consistent with the relevant provisions of
the Act and other related regulations. Under section 1611(a) of the
Act, Congress specifically has established resource limits for an
individual's eligibility for the needs-based benefits in the SSI
program in addition to income limits. As was stated above, promissory
notes or installment sales contracts received from the sale of an
excluded home are resources, as described in Sec. 416.1201, as long as
the owner has the legal right to liquidate or convert the resource to
cash which could be used for support and maintenance. In general, while
it is true that some resources may not be available to be used
immediately to meet an individual's daily needs, Congress has
recognized that such resources have value in that they can be sold or
``cashed out'' and the money received can be used by the individual for
his or her support and maintenance.
Comment: The commenter stated that the NPRM does not explain how
the Agency will determine the value of a promissory note or similar
installment sales contract.
Response: We provide general guidance on resource valuation
procedures in paragraphs (b) and (c) of Sec. 416.1201 of our
regulations. These paragraphs explain how we evaluate liquid and
nonliquid resources according to their equity value. For purposes of
this evaluation, the equity value of a resource is defined as the price
for which an item can reasonably be expected to sell on the open market
in the particular geographic area involved minus any encumbrances. The
value of a promissory note or installment sales contract will be
determined by using this procedure.
Regulatory Procedures
Executive Order 12866
We have consulted with the Office of Management and Budget (OMB)
and determined that this rule does not meet the criteria for a
significant regulatory action under E.O. 12866. Thus, it was not
subject to OMB review.
Paperwork Reduction Act
This regulation imposes no reporting/recordkeeping requirements
requiring OMB clearance.
Regulatory Flexibility Act
We certify that this regulation will not have a significant
economic impact on a substantial number of small entities because this
regulation affects only individuals and States. Therefore, a regulatory
flexibility analysis as provided in Pub. L. 96-354, the Regulatory
Flexibility Act of 1980, is not required.
(Catalog of Federal Domestic Assistance Program No. 93.807,
Supplemental Security Income).
List of Subjects in 20 CFR Part 416
Administrative practice and procedure, Aged, Blind, Disability
benefits, Public assistance programs, Reporting and recordkeeping
requirements, Supplemental Security Income.
Dated: July 5, 1994.
Shirley Chater,
Commissioner of Social Security.
Approved: August 16, 1994.
Donna E. Shalala,
Secretary of Health and Human Services.
For the reasons set out in the preamble, Part 416 of Chapter III of
Title 20, Code of Federal Regulations, is amended as follows:
PART 416--[AMENDED]
1. The authority citation for Subpart L of Part 416 continues to
read as follows:
Authority: Secs. 1102, 1602, 1611, 1612, 1613, 1614(f), 1621 and
1631 of the Social Security Act; 42 U.S.C. 1302, 1381a, 1382, 1382a,
1382b, 1382c(f), 1382j and 1383; sec. 211 of Pub. L. 93-66; 87 Stat.
154.
2. Section 416.1212 is amended by redesignating the existing text
in paragraph (d) as paragraph (d)(1), adding new paragraphs (d)(2) and
(d)(3), and adding new paragraphs (e), (f) and (g) to read as follows:
Sec. 416.1212 Exclusion of the home.
* * * * *
(d) Proceeds from the sale of an excluded home.
(1) * * *
(2) The value of a promissory note or similar installment sales
contract constitutes a ``proceed'' which can be excluded from resources
if--
(i) The note results from the sale of an individual's home as
described in Sec. 416.1212(a);
(ii) Within 3 months of receipt (execution) of the note, the
individual purchases a replacement home as described in
Sec. 416.1212(a) (see paragraph (e) of this section for an exception);
and
(iii) All note-generated proceeds are reinvested in the replacement
home within 3 months of receipt (see paragraph (f) of this section for
an exception).
(3) In addition to excluding the value of the note itself, other
proceeds from the sale of the former home are excluded resources if
they are used within 3 months of receipt to make payment on the
replacement home. Such proceeds, which consist of the downpayment and
that portion of any installment amount constituting payment against the
principal, represent a conversion of a resource.
(e) Failure to purchase another excluded home timely. If the
individual does not purchase a replacement home within the 3-month
period specified in paragraph (d)(2)(ii) of this section, the value of
a promissory note or similar installment sales contract received from
the sale of an excluded home is a countable resource effective with the
first moment of the month following the month the note is executed. If
the individual purchases a replacement home after the expiration of the
3-month period, the note becomes an excluded resource the month
following the month of purchase of the replacement home provided that
all other proceeds are fully and timely reinvested as explained in
paragraph (f) of this section.
(f) Failure to reinvest proceeds timely. (1) If the proceeds (e.g.,
installment amounts constituting payment against the principal) from
the sale of an excluded home under a promissory note or similar
installment sales contract are not reinvested fully and timely (within
3 months of receipt) in a replacement home, as of the first moment of
the month following receipt of the payment, the individual's countable
resources will include:
(i) The value of the note; and
(ii) That portion of the proceeds, retained by the individual,
which was not timely reinvested.
(2) The note remains a countable resource until the first moment of
the month following the receipt of proceeds that are fully and timely
reinvested in the replacement home. Failure to reinvest proceeds for a
period of time does not permanently preclude exclusion of the
promissory note or installment sales contract. However, previously
received proceeds that were not timely reinvested remain countable
resources to the extent they are retained.
Example 1. On July 10, an SSI recipient received his quarterly
payment of $200 from the buyer of his former home under an
installment sales contract. As of October 31, the recipient has used
only $150 of the July payment in connection with the purchase of a
new home. The exclusion of the unused $50 (and of the installment
contract itself) is revoked back to July 10. As a result, the $50
and the value of the contract as of August 1, are included in a
revised determination of resources for August and subsequent months.
Example 2. On April 10, an SSI recipient received a payment of
$250 from the buyer of his former home under an installment sales
contract. On May 3, he reinvested $200 of the payment in the
purchase of a new home. On May 10, the recipient received another
$250 payment, and reinvested the full amount on June 3. As of July
31, since the recipient has used only $200 of the April payment in
connection with the purchase of the new home, the exclusion of the
unused $50 (and of the installment contract itself) is revoked back
to April 10. As a result, the $50 and the value of the contract as
of May 1 are includable resources. Since the recipient fully and
timely reinvested the May payment, the installment contract and the
payment are again excludable resources as of June 1. However, the
$50 left over from the previous payment remains a countable
resource.
(g) Interest payments. If interest is received as part of an
installment payment resulting from the sale of an excluded home under a
promissory note or similar installment sales contract, the interest
payments do not represent conversion of a resource. The interest is
income under the provisions of Secs. 416.1102, 416.1120, and
416.1121(c).
[FR Doc. 94-20629 Filed 8-22-94; 8:45 am]
BILLING CODE 4190-29-P